Adding Grocery Outlet and Sprouts Farmers Market to Best Idea Long List
Investors are too focused on lapping the stay at home restrictions and missing the long-tailed changes in consumer shopping behavior from the COVID-19 pandemic.
- Consensus estimates are too low because they imply an elevated level of grocery spends only through the end of the calendar Q2.
- Both companies' multiples do not reflect their unit growth potential and the scarcity of companies with open-ended store growth opportunities.
- A second wave or just a continuous wave, both companies are positioned to grow above current projections with or without another lockdown.
Grocery sales grew month over month in May and accelerated year over year (KR)
The US Dept. of Commerce reported yesterday that May retail sales grew 17.7% from April, above expectations of 8.1% growth. Compared to the prior-year retail sales declined by 6.1%. April was revised to -14.7% from -16.4%. Gasoline sales were up 12.8%, indicating more driving by consumers—retail sales ex. Autos and gasoline increased 12.4% but were down 3.9% YOY. Food services grew 29.1% as more restaurants opened their dining rooms during the month but were still down 40% from pre-COVID-19 levels. In May, food and beverage stores grew 1.3% from April and 14.5% from the prior year, compared to April's YOY increase of 12.4%.
Tariffs on Italian wine coming? (STZ)
The European Union Trade Commissioner hinted that the EU might impose its sanctions on US goods as a result of the long-running dispute over aviation subsidies. Last year the US imposed tariffs on $7.5B of EU goods, including a 25% import tariff on French, German, and Spanish wine, spirits, and liqueurs. In a broadening of the trade dispute last month, the US launched an investigation into countries that have adopted a digital services tax. The US government is accepting public comments until July 15. France approved a 3% digital services tax last year. In December, the US retaliated with a proposal to increase by up 100% tariffs on French goods, including wine. In January, President Trump and French President Marcon agreed to a truce for a year. Italy enacted a 3% digital services tax that only impacted Facebook and Google in January. Tariffs on Italian wine, which had sales of $1.2B in the US last year, could be becoming. Italy is #1 in imported wine in the US, representing nearly a third of all imports. Tariffs on Italian wine could materially impact share with Californian and possibly Australian wines benefiting. Constellation Brands is in the process of selling several lower-priced wine brands to E & J Gallo, but the brands it is retaining would also benefit from tariffs on Italian wines.
